SUPPLY CHAIN

Unchained business

Supply chain management (SCM) costs make up as much as 80% of an enterprise’s total expenditures. That means a 10% savings in supply chain operations can translate into a massive 60% increase in profit while maintaining or improving quality.

This is according to Charlie Villaseñor, Chairman and CEO of the Procurement and Supply Institute of Asia, who presented a workshop on the United Nations Supply Chain Education Programme at the SAPICS 2015* conference this month at Sun City.

According to Villaseñor, improving one’s business through the effective application of SCM principles is the way forward. “It’s clear that effective management of resources, processes and relationships with suppliers, contractors and customers is an essential task for every business. It can mean the difference between profit and loss, between success and failure.”

According to Villaseñor, who is on the Advisory Board of the MLS-SCM Program of the International Trade Centre – a joint agency of the UN and World Trade Organisation – there is an international drive to develop supply chain skills in emerging countries as a means of increasing export capability.

“With the world’s economy shifting towards developing countries, Africa must be a particular focus – and given the potential that SMEs have to boost local economies, it’s chiefly SMEs that we want to see benefiting from supply chain management education,” he says.

Villaseñor says helping companies to be more able to meet today’s challenging market conditions starts with equipping them with supply chain management (SCM) skills. “Sharp supply chain skills can do a great deal for your business. It’s time for small businesses to get skilled!”

“Small businesses in South Africa can already benefit from globally recognised supply chain management certifications through SAPICS,” concludes Jenny Froome, SAPICS General Manager. “The APICS Certified Supply Chain Professional (CSCP) and Certified in Production and Inventory Management (CPIM) programs, DDI’s Certified in Demand Driven Planning (CDDP) and IBF’s Certified Business Forecaster are ideally suited to small businesses that recognise the positive influence these competencies can have their employees thus ensuring the company’s success.”

From local shores

Local expert Martin Bailey, SAPICS board member and Chairperson at Industrial Logistic Systems, told Opportunity when it comes to SMEs the current supply chain situation in SA varies substantially – with some small organisations operating great systems and infrastructures, while others are entrenched in a “Third World” environment. “The biggest problem for many SMEs is that supply chain costs are significantly influenced by scale – and clearly small organisations struggle to achieve such economies of scale (unless they can create a niche where this can be nullified or where they provide a unique service that is not cost driven).”

To boost supply chain skills of SMEs, the removal of operating bureaucracy will certainly help – with a need to make starting and running a business as simple as possible. As long as this does not impinge on safety. This is especially true for labour recruitment (hire and fire).

“Clearly for many SMEs expensive ‘high level’ skills are a problem – simply because of their cost. Because many SMEs are operating in a fairly simple environment – high tech skills may not necessarily be required. Clearly they can also look to their suppliers and possibly to their customers to resource skills. Potentially they can also use the skills of third party providers.

“With supply chain making up in excess of 15% of the GDP, anything we do to improve productivity is vital to the economy. In South Africa we have the added problem of our man commercial centre being far from any ports – which adds even more pressure to be efficient. SMEs are often core to creative thinking. They are not burdened by large corporate thinking, and they can add a great deal of fresh thinking to supply chain processes.

“The resources for SMEs to become cost effective and competitive are often provided by external parties. Efficient road, air and rail networks are an essential component for their survival. They can then tap into these resources to grow their businesses. Clearly there are big gaps in these resources (especially rail). But there are also excellent resources available – that can be tapped,” he says.

Strengthening the footprint

According to Bailey, when it comes to creating a more solid SME footprint when it comes to supply chain, a partnership between SMEs and government is vital as it will encourage significant growth. “Certainly from a purchasing viewpoint, Government has committed to a blend of using SMEs (coupled to empowerment). In practice Government is often on its own mission with much of their ‘partnerships’ being skewed with dishonest practices – which certainly does not improve productivity.”

Adding to this topic, Liezl Smith, Chairperson of SAPICS ExCo, says when it comes to creating a more solid supply chain SME footprint, Government can provide the infrastructure and enable the environment. “Something that is a major hurdle for SMEs is access to finance. If easier finance could be available to enable SMEs to have effective distribution networks, it could be of benefit. Something that could be a major enabler, is if Government can have distribution hubs for use by SMEs, so that those SMEs do not have to build their own infrastructure, but can rent at a lower rate. If our rail infrastructure could be more reliable and accessible to SMEs it can lower costs. Of course the private sector needs to tell Government what it needs and support those initiatives too.”

She says as soon as businesses understand the value and the advantage it can give them, they can become more competitive and perhaps be able to be cheaper than imported products. GDP growth would result.

Looking at other developing countries, and how SA compares, Bailey says our blend of first and third world environments separates South Africa from many of the supply chain practices in developing Africa. “We are often thus very much more sophisticated in our processes than our neighbours. On the other hand many of the more rapidly developing nations outside Africa operate supply chains that have become first world – and far more sophisticated than those in other developing nations.”

Smith says even though we are not officially the biggest economy in Africa anymore, she believes we have one of the highest levels of sophistication and quality of infrastructure on the continent and compared to other developing countries.

Asked which countries should we be looking at for lessons learnt to improve our own affairs, both Smith and Bailey agree that Europe is always a good example of how things should be done. Smith says Europe’s capabilities grew from necessity to compete across borders. Bailey elaborates and says, however, when looking at other countries, and what we can learn from them, one should distinguish between the various sectors. “From a rail viewpoint, the USA and Canada for example has the best networks (highest percentage freight by rail). If one is looking at port operations, Singapore is probably the best example of what can be achieved. If you are looking for automation Europe is the world’s leaders.”

However, the challenges South African SMEs in supply chain are battling with are by no means small. These include cash flow problems, access to finance, acceptance of their offerings to large business, red tape and (state) bureaucracy preferential procurement policies, restrictive labour laws.

Her advice to South Africa to boost supply chain skills of SMEs: “Awareness is necessary. Perhaps a drive by the Department of Trade and Industry assisted by industry bodies like SAPICS, SAAFF and the like, will assist in general levels of awareness.”